-
Key Tax Tip: Considering Market Value in Taxation
It's essential to understand when to factor in market value for tax purposes, especially in scenarios involving property. Here's what you need to know:
1. Capital Gains Tax Event K4: When valuing land held as trading stock at market value, CGT Event K4 is triggered. If the market value exceeds the cost base, a capital gain arises. Conversely, a capital loss occurs if the market value is lower than the reduced cost base.
2. Strategic Considerations: Despite triggering CGT Event K4, there are situations where electing to value land at market value can be beneficial. For instance, if the land is a pre-CGT asset or if the taxpayer can access CGT discounts, such as the 50% general CGT discount or CGT SBCs.
3. Property Developer Transition: When a property developer shifts from holding land as trading stock to other purposes like personal use or renting, tax consequences arise. Section 70-110 treats the transition as a sale at arm's length for cost, followed by an immediate repurchase at the same amount. This affects the assessment of the developer's cost and potentially provides deductions.
4. Income-Producing Use: If the retained property is used for income generation, such as rental income, the taxpayer can generally deduct related expenses. However, specific considerations apply, as clarified by ATO ID 2014/8 regarding Division 43 write-offs.
For expert guidance tailored to your specific circumstances, reach out to Tax Ideas Accountants & Advisers at +61 2 8318 1545 or book an appointment through our live calendar.
